Unit 2 Check for Understanding

Assume a 10 percent increase in price increased the market quantity supplied by 20 percent. Which of the following is true? A) The value of the price elasticity of supply is 2. B) The value of the price elasticity of supply is 0.5. C) Supply is price inelastic. D) Demand is price elastic. E) This price-quantity combination violates the law of supply.

A) The value of the price elasticity of supply is 2.

Which of the following will cause the demand for a normal good to increase? A) A decrease in consumers' income B) A decrease in the price of a complementary good C) A decrease in the price of a substitute good D) A decrease in the price of the good E) A decrease in the number of consumers

B) A decrease in the price of a complementary good

Which of the following statements about the market supply curve is true? A) An increase in input prices will shift the market supply curve to the right. B) At each price, a horizontal summation of the quantity supplied by each firm will yield the market supply curve. C) At each quantity supplied, a vertical summation of the price set by each firm will yield the market supply curve. D) A decrease in the price will shift the market supply curve to the left. E) The law of supply states that the market supply curve may shift right, shift left, or remain the same as the price increases.

B) At each price, a horizontal summation of the quantity supplied by each firm will yield the market supply curve.

Assume that good X is a normal good. If the price of good X increases, what will happen? A) The substitution and income effects will both lead to more of good X being purchased. B) The substitution and income effects will both lead to less of good X being purchased. C) The substitution effect will lead to more of good X being purchased, while the income effect will lead to less of good X being purchased. D) The substitution effect will lead to less of good X being purchased, while the income effect will lead to more of good X being purchased. E) There will be no income effect because only the price of good X has changed.

B) The substitution and income effects will both lead to less of good X being purchased.

Which of the following changes will lead to an increase in the supply of good X? A) An increase in the price of good X B) An increase in the wages of labor used to produce good X C) A decrease in the price of energy, a key input to the production of good X D) An increase in the demand for good X E) A decrease in the number of sellers of good X

C) A decrease in the price of energy, a key input to the production of good X

Assume the income elasticity of demand for good Z equals −5.0. Which of the following is true? A) Good Z is a normal good. B) Good Z must have an inelastic demand. C) An increase in income will lead to a decrease in demand. D) An increase in income will lead to an increase in demand. E) The income effect of a price increase will be a decrease in quantity demanded at every price.

C) An increase in income will lead to a decrease in demand.

Based on the graph above, the producer surplus at the market equilibrium price and quantity is shown by which area? A) GMK B) GMN C) GZN D) ZMN E) MNK

C) GZN

In the absence of market failures, a perfectly competitive market equilibrium is efficient for which of the following reasons? A)Consumer surplus is maximized and consumers are better off relative to producers. B) Producer surplus is maximized and producers are better off relative to consumers. C) Total economic surplus is maximized and all mutually beneficial transactions are exhausted. D) Total economic surplus is distributed equally between producers and consumers. E) The quantity of output is produced at a constant cost so that every consumer pays the same price.

C) Total economic surplus is maximized and all mutually beneficial transactions are exhausted.

Assume that the price elasticity of supply for good Y is 0.5. If the price of good Y decreases by 30 percent, the quantity supplied of good Y will A) decrease by 60 percent B) decrease by 30 percent C) decrease by 15 percent D) increase by 0.5 percent E) increase by 0.15 percent

C) decrease by 15 percent

If the value of the price elasticity of supply is 3, which of the following is true? A) Supply is inelastic. B) A percentage increase in price will lead to a relatively smaller percentage increase in quantity supplied. C) The supply curve is downward sloping with respect to the price of output. D) A 10 percent decrease in price will decrease the quantity supplied by 30 percent. E) A 3 percent increase in price will decrease the quantity supplied by 10 percent.

D) A 10 percent decrease in price will decrease the quantity supplied by 30 percent.

Which of the following statements relating to supply is true? A) An increase in an input price will lead to an increase in supply. B) An increase in the price of a good will lead to an increase in the supply of the good. C) A decrease in consumers' income will lead to a decrease in the supply of the good. D) A decrease in the price of a good will lead to a decrease in the quantity supplied of the good. E) A decrease in the price of a substitute good in production will lead to a decrease in the supply of another substitute good.

D) A decrease in the price of a good will lead to a decrease in the quantity supplied of the good.

Which of the following statements about the price elasticity of demand is true? A) When demand is price inelastic, total revenue will decrease as price increases. B) When demand is price elastic, an increase in price will increase total revenue. C) Demand tends to be more elastic in the short run compared to the long run. D) As more close substitutes become available, demand tends to be more price elastic. E) As a good becomes viewed as a necessity, demand becomes more price elastic.

D) As more close substitutes become available, demand tends to be more price elastic.

Assume that the price of orange juice increases by 40 percent following a crop failure. If the quantity demanded falls by 10 percent, which of the following is true? A) The demand for orange juice is elastic. B) The price of grapefruit juice, a substitute good, will fall. C) The absolute value of the price elasticity of demand for orange juice is 4. D) The absolute value of the price elasticity of demand for orange juice is 0.25. E) The absolute value of the price elasticity of demand for orange juice is 10.

D) The absolute value of the price elasticity of demand for orange juice is 0.25.

The price elasticity of demand for a product is 0.5. If the price of the product increases by 20 percent, which of the following will occur? A) The quantity demanded of the good will increase by 10%. B) The quantity demanded of the good will increase by 20%. C) The quantity demanded of the good will increase by 40%. D) The quantity demanded of the good will decrease by 10%. E) The quantity demanded of the good will decrease by 40%.

D) The quantity demanded of the good will decrease by 10%.

Which of the following best describes the law of demand? A) When income increases, the demand for goods increases. B) When the price of a good decreases, the demand for the good increases. C) When the price of a good decreases, the quantity demanded of the good decreases. D) When the price of a good increases, the quantity demanded of the good decreases. E) When the demand for a good increases, consumers' willingness and ability to buy the good increases.

D) When the price of a good increases, the quantity demanded of the good decreases.

Which of the following statements relating to income elasticity is true? A) A positive value for the income elasticity coefficient indicates an inferior good. B) If good X and good Y have negative income elasticities, then both goods are substitutes. C) With an income elasticity coefficient of 0.6, the demand is inelastic and the good is an inferior good. D) With an income elasticity coefficient of 5, a 10 percent increase in income will lead to a 50 percent increase in the quantity demanded of the good. E) With an income elasticity coefficient of −1.2−1.2, a 10 percent increase in income will lead to a 12 percent decrease in the price of the good.

D) With an income elasticity coefficient of 5, a 10 percent increase in income will lead to a 50 percent increase in the quantity demanded of the good.

Based on the graph above, the consumer surplus at the market equilibrium price and quantity is shown by which area? A) GMK B) GMN C) GZN D) ZMN E) MNK

D) ZMN

The cross-price elasticity of demand between goods J and K is −3. A 20 percent decrease in the price of good K will result in a A) 3 percent decrease in the quantity demanded of good K B) 15 percent decrease in the quantity demanded of good K C) 6 percent increase in the quantity demanded of good J D) 12 percent increase in the quantity demanded of good J E) 60 percent increase in the quantity demanded of good J

E) 60 percent increase in the quantity demanded of good J